That is the subtitle of a new paper by Robert J. Barro, José F. Ursúa, and Joanna Weng, here is the abstract:
Mortality and economic contraction during the 1918-1920 Great Influenza Pandemic provide plausible upper bounds for outcomes under the coronavirus (COVID-19). Data for 43 countries imply flu-related deaths in 1918-1920 of 39 million, 2.0 percent of world population, implying 150 million deaths when applied to current population. Regressions with annual information on flu deaths 1918-1920 and war deaths during WWI imply flu-generated economic declines for GDP and consumption in the typical country of 6 and 8 percent, respectively. There is also some evidence that higher flu death rates decreased realized real returns on stocks and, especially, on short-term government bills.
I wonder if the economic cost isn’t higher today because we know more about how to limit pandemic spread and we also value human lives more, relative to economic output?
Kudos to the authors for such swift work.
Also from NBER here is Andrew Atkeson on the dynamics of disease progression, depending on the percentage of the population with the disease. Here is an excerpt from the paper:
Even under severe social distancing scenarios, it is likely that the health system will be overwhelmed, which is indicated to happen when the portion of the U.S. population actively infected and suffering from the disease reaches 1% (about 3.3 million current cases).7 More severe mitigation efforts do push the date at which this happens back from 6 months from now to 12 months from now or more, perhaps allowing time to invest heavily in the resources needed to care for the sick. It is clear that to avoid a health care catastrophe as is currently being experienced in Italy, prolonged severe social distancing measures will need to be combined with a massive investment in health care capacity.
Under almost all of the scenarios considered, at the peak of the disease progression, between 10% and 20% of the population (33 – 66 million people) suffers from an active infection at the same time.
A not entirely cheery prognosis.
From my email, from Amanda Brown, she is developing this plan with Ben Laufer:
I am a master’s student at Stanford in Management Science & Engineering and a fan of your blog Marginal Revolution. I have been following it more closely in the midst of COVID-19, especially the conversations about small business financing during the crisis (e.g. today’s post about bridge loans).
I was hoping to get feedback on an idea for a new small business lending platform which would allow community members to fund fractional amounts of a business loan. The thesis is that fractional loan contributions from local supporters would give institutional lenders confidence to fund the full requested loan amount (and that the total amount contributed by peers would supplement traditional measures of borrower creditworthiness, such as FICO score, cash flow, etc., when setting the interest rate). For example, 10% of the principal might come from all the peer investors combined, and the remaining 90% from a single big lender. To my knowledge, nothing quite like this exists. In the wake of COVID-19 shutdowns, it seems especially important for small businesses at the heart of our communities to be getting access to low-interest financing based on peer endorsement.
Adding the “peer staking” element to a small business loan signals to investors that the local community believes in the future success of the business and the borrower’s likelihood of repaying (and peers would also be able to earn the same interest rate return on the principal as the majority funder… so it’s not like crowdfunding, where you contribute but won’t see your dollar again…). The design also increases accountability without the need for a collateral since borrowers would feel a personal responsibility to repay their peer debt-holders, who may be friends, family or customers.
I am wondering what your thoughts are on the idea (and its relevance at this time). If you think it is worthwhile, perhaps you would consider sharing this 5-minute survey with your followers to collect feedback on the idea:
Amanda Brown (email@example.com)
Ben Laufer (firstname.lastname@example.org)
Alan Krueger died a year ago this week. I think of him often, and would like to mark the anniversary of his death by sharing a story of my time with Alan. Alan and I had a lot in common. First, we were both born in the third quarter; that is, we’re QOB3s. In fact, Alan was only one day older than me. We used to joke that this explains his relative success: it’s an age effect!
There is much more at the link, moving throughout. And here is the Joshua Angrist introduction to econometrics course on Marginal Revolution University.
4 people in Alicante were ticketed for violating the State of Alarm for walking the same dog. Seems there were trying to get out of their apartments to walk their dog, only it wasn’t theirs. I’d like to know if the owner of the dog was pimping it out for walks. Update: People are pimping out their dogs for walks Going rate seems to be between 20 and 25 Euros per walk.
That is from a reader (Marty O.) email, in turn from a contact in Spain, here is an associated article those dogs are pretty tired by now.
This is an email, all from him, I won’t add in any other formatting:
“Like you, I have an extraordinarily deep concern about the capacity for businesses – not only SMBs, but also larger, capital-intensive firms – to weather this path of suppression. I was quite surprised to hear Russ take a lighter note.
…I am deeply sceptical of the efficacy of bridge loans that you spoke about early this morning. While Brunnermeier, Landau, Pagano, and Reis have laid out the best transmission mechanism, I can not possibly envision it will move the needle enough for the majority of those businesses while also not leaving a wake of loss provisions for future generations. I suppose you could say I am partial to point two in your piece.
I also simply can’t understand the legal logistics of bridge loans in this scenario. Most companies will have a capital structure of some kind (perhaps without the most sophisticated lenders). How are you cramming down those who you are priming in the capital structure? You need consent. Who will be managing this incredibly laborious process of gaining consent and creating the terms? Cash grants are one thing, but bridge loans that aren’t unsecured at the bottom of the capital structure are an entirely different matter.”
“While the benefit of hindsight can be a hindrance to pontificating on novel circumstances, it strikes me as unequivocally true that the GFC had a much simpler – intellectually, if not politically – solution. Namely a solution that at its core involved taking known, marketable securities out of the system at haircuts or depressed valuations to abate panic, settle markets, and of course eventually sell at a profit.
In short, I’m partial to the view that mark-to-market accounting was both a central impetus for why the crisis was so severe and why action could be taken so decisively without burdening tax payers for generations to come (see Ball’s very good book here and Fragile by Design, both of which you’re likely familiar with). This crisis provides no such “simple” solutions that can be concentrated against a singular sector of the economy by taking decisive action.
I, of course, have no grand unified theory to share with you. However, I did want to pass along some thoughts I had upon reading your bridge loan piece that came to mind.
Like you, I am also worried about how broad the demand shock is currently and will be moving forward. Affecting not only every industry severely, but also every locality in the economy (e.g. leaving no state or municipality without deep, painful bruises). This raises the question of how the economy – when this is all said and done – reconstitutes itself in an orderly, efficient fashion.
While I’m partial…I believe one of the incredible strengths of the United States is its bankruptcy code. In particular, the out-of-court and Chapter 11 processes.
I would perhaps mull over how the United States can leverage the bankruptcy code to provide support, both out-of-court (e.g. before filing) and to expedite the process while in-court (e.g. by utilizing pre-packs, which are very popular, very quick, and incredibly effective at providing sustainable balance sheets).
The United States could explore offering – or backstopping – DIP Financing for firms that file Chapter 11 (see explainer on DIP financing from Davis Polk here). DIP Financing has been around for many decades, is incredibly safe, and deeply effective.
- The US could offer DIP Financing at favourable terms directly and automatically under preset conditions (e.g. a firm that was FCF positive in 2018 with EBITDA +$mln, but needing to file Chapter 11 in 2020, would immediately get a facility at L+). This would also give the US the highest seniority in the cap stack with very favourable terms upon a potential future Chapter 11 (Chapter 22) or a future Chapter 7 (liquidation). For firms that have not been in distress prior to the crisis, this would have the US assuming very little real credit risk.
- The US could backstop private DIP providers – to get credit rolling again – by guaranteeing  cents on the dollar for any facility extended within the next [X] months. Historically, DIPs have returned much more than this so this is reasonably safe from a credit perspective. Note: this could also be done for TL1s or revolvers out-of-court. Same principle applies regarding seniority, lessened credit risk, etc. although you’d need consent down the capital structure.
- The United States could explore offering participation in pre-packs whereby:
- The US would inject $[X]mln in senior secured notes if;
- Existing Senior Secured take a % haircut
- Unsecured take a % haircut
- Equity take a % haircut
- Again, the idea would be for pre-packs to be, well, pre-done. The idea would be that if your business is hurling towards bankruptcy, it may be best to bite the bullet and recapitalize (via the US notes) while re-working your balance sheet right now. If your firm meets the FCF, EBITDA, or whatever criteria is determined then the US would offer this package automatically. Contingent only on those within the capital structure consenting to taking at least [X]% haircuts (as consent is required by law). Note: you may want to say that any financing put in – or backstopped by – the US will not be additive to the covenant ratios underpinning the rest of the capital structure (or these covenants can just be amended, if necessary, to allow for this new capital injection as is commonplace anyway).
- The United States could explore offering participation in pre-packs whereby:
One would hope that if The United States does something like this it could serve three useful functions:
- Providing confidence to market participants that there will be a financing backstop – for otherwise healthy firms blindsided by COVID-19 – by the United States, which will likely have the paradoxical affect of freeing up credit from private participants and stopping the explosion in credit spreads and the halting of credit extension we’re currently seeing.
- Allowing firms, without much relative credit risk to the United States, to obtain a runway through the fresh injection of capital along with a modest restructuring that will help them weather the storm if it is to be prolonged.
- Providing an automatic, guaranteed solution that is widely accessible to firms as all qualifications and terms would be preset and thus remove any uncertainty as to what firms would be able to qualify for or ultimately obtain.
Using the bankruptcy code in this way would allow the United States to help firms (albeit, likely slightly larger ones than mom-and-pops) in a predictable, known, guaranteed way while also protecting tax payers from taking significant downside risk positions in an ad-hoc and convoluted matter via bridge loans (if they are feasible at all, which I doubt). In short, the United States would leverage the incredibly strong institutional and intellectual framework of its existing bankruptcy code.
I believe – as I believe you do as well – that we are in for a much lengthier protraction than many anticipate…I do not believe Goldman’s forecast…that we’ll see 13% GDP growth in Q3. I do not believe demand will return so quickly or in such force, because I do not believe we will return to normalcy as quickly as we have just departed it.
As I said previously, I have no grand unified theory to get American business through this crisis. However, we both agree in the general goodness of Big Business as a driver of America. What I’ve just laid out is perhaps the most politically palpable solution (because it involves bankruptcy, even if only in name only) that can give a strong life line to those currently in need while not exposing taxpayers to absurd (albeit still large) credit risk. This solution also can be worked to protect pension liabilities and other essential worker benefits.
I think it’s inevitable that we have mass insolvencies, dislocations, and mismatches moving forward. For small businesses, there are solutions around the edges, but I simply cannot comprehend how the United States would be able to figure out and then extend the appropriate levels of credit via bridge loans en masse to these folks. It is surreal to imagine it possibly working and I worry deeply about what such a program – if tried, almost certainly with less dollars than would be required – would do to the social fabric and psyche of the American people when firms inevitably still buckle and break.
I haven’t given much thought to how to leverage the institutional framework of America to best ameliorate this crisis, but I’ve seen no one speak much about how out-of-court or in-court restructuring could be a partial solution. So I figured I’d pass this along as something to keep in the back of your mind and mull over.”
Zachary tells me you can reach him at Zachary.Booker@mail.McGill.ca.
There are two problems, even internal contradictions, with segregating the elderly and letting others return to work. The first is fairly well known. When you run the numbers, as the British did, you find that a lot of young people would die. If we return to work too quickly it could easily happen that 20-40% of the US population gets COVID-19. Suppose 20% of the population gets it–that’s 66 million people. And let’s suppose the death rate is on the low end because healthy, young people get it rather than the elderly, say half of one percent, .005, then we have 330,000 deaths of healthy, young people.
Moreover, the numbers I just gave are conservative and don’t make a lot of sense because if 330,000 die then the hospital system is going to be overwhelmed and the death rate will be higher than .005. An internal contradiction.
The second internal contradiction is less well known. We probably can’t segregate the elderly because the more young people get COVID-19 the less realistic protecting a subset of the population becomes. In other words, the premise of the segregation argument is that we can protect the elderly but that premise becomes less plausible the more COVID-19 spreads but allowing it to spread is why we were locking down the elderly. An internal contradiction.
Are there some scenarios where all this works out? Probably but I wouldn’t bet on hitting the trifecta. The lesson of COVID-19 is that like it or not we are all in this together.
In our textbook, Modern Principles of Economics, Tyler and I explain the benefits of free trade and show why some common arguments against free trade are mistaken. Our goal, however, is to teach students how to think like economists and so we also explain the costs of free trade. In particular, we indicate the strongest arguments against free trade and explore when those arguments best apply. Here’s one of the better arguments against free trade, straight from the book:
If a good is vital for national security but domestic producers have higher costs than foreign producers, it can make sense for the government to tax imports or subsidize the production of the domestic industry. It may make sense, for example, to support a domestic vaccine industry. In 1918, more than a quarter of the U.S. population got sick with the flu and more than 500,000 died, sometimes within hours of being infected. The young were especially hard-hit and, as a result, life expectancy in the United States dropped by 10 years. No place in the world was safe, as between 2.5% and 5% of the entire world population died from the flu between 1918 and 1920. Producing flu vaccine requires an elaborate process in which robots inject hundreds of millions of eggs with flu viruses. In an ordinary year, there are few problems with buying vaccine produced in another country, but if something like the 1918 flu swept the world again, it would be wise to have significant vaccine production capacity in the United States.
If I may be permitted to advertise a bit (more). In Modern Principles, we explain the concept of externalities using flu shots. In macroeconomics, we deal with both real shocks and demand shocks and we list pandemics as one example of a real shock. We also explain how shocks are amplified and can create dis-coordination. These relevant, real world examples in Modern Principles are not an accident. There are different styles of textbooks. Some are written in a vanilla style so they don’t need to be updated or revised very often. In contrast, we wanted Modern Principles to have modern examples and to be relevant to the times. Sometimes, however, we’d like it to be a little less relevant.
Andrew Ross Sorkin explains (NYT):
The fix: The government could offer every American business, large and small, and every self-employed — and gig — worker a no-interest “bridge loan” guaranteed for the duration of the crisis to be paid back over a five-year period. The only condition of the loan to businesses would be that companies continue to employ at least 90 percent of their work force at the same wage that they did before the crisis. And it would be retroactive, so any workers who have been laid off in the past two weeks because of the crisis would be reinstated.
Strain and Hubbard call for $1.2 trillion in lending to smaller businesses (Bloomberg). John Cochrane considers a version of the plan. Here is Brunnermeier, Landau, Pagano, and Reis. I have been pondering the following points:
1. If you are an optimist about the cycle of recovery, this is very likely a good idea. If you let those companies fall apart, there is a significant loss of organizational capital and the matching problems in the labor markets have to be solved all over again. Recent experience on that front is not so encouraging.
2. If you are a pessimist about the cycle of recovery, I am less sure how well this will work. Let’s say a vaccine is difficult and there a few waves of the virus. Many of the smaller or even larger businesses may be going under anyway, as they cannot live off aid forever. In the meantime, you might actually want those resources to be reallocated to good transport, biomedical testing, and so on. If the wartime analogy is apt, you don’t want to freeze the previous capital structure into place, unless of course you get lucky and win the war early.
3. If you a pessimist about the solvency of banks (have you ever seen a stress test for 30% unemployment?), you have not gotten the government out of the business of capital allocation.
4. The bridge loans might work especially poorly for start-ups. Yes, StubHub or some company like that is around for the long run, and if the bridge loans can keep them up and running until concerts return, so much the better. But what about the eighty wanna-bees next in line, most of whom are likely to fail? Do they too get bridge loans? (Do note the ecosystem as a whole is yielding positive value.) The market itself chose the venture capital financing form for those entities, not debt. And yet now the government is stepping in and propping them up with debt, even though we know virtually all of them are likely to fail (even pre-coronavirus that was the case). You might think “well, we will know not to do that.” But on what legal basis would those other “likely to fail start-ups” be excluded from the bridge loans?
4b. Is it all about “banks decide”? How do we stop banks from simply hoarding the new money? (The Fed already has flooded the banking system with liquidity.) Just loaning the money to super-safe firms for de facto negative rates? What exactly are the regulatory requirements here? To the extent the loans are de facto guaranteed, won’t banks lend to a large number of lemons? What do the interest rates and collateral requirements look like on these loans and how are those set in what is now a non-competitive setting?
5. Overall my sense is that American policy, if only for cultural reasons, has to proceed on an optimistic basis. It is not clear what the relevant alternative is, and I do not oppose bridge loans. Nonetheless I am seeing too many people jump uncritically at bridge loans with a “throw everything at the wall” approach and not thinking hard enough about their possible downsides. At the very least, being critical about bridge loans will help us make bridge loans better.
6. No, I don’t favor governmental bridge loans for non-profits. De facto, that this means this is a huge relative shift of resources away from non-profits and toward businesses. YMMV.
7. I have received numerous reader emails telling me how bad, slow, and cumbersome is the Small Business Administration process for getting loans. Will this new regime do better?
8. It is the same government that could not organize testing and mask production that we are expecting to run what might amount to a $1 trillion plus bridge loans program.
Have a nice day.
We extend the canonical epidemiology model to study the interaction between economic decisions and epidemics. Our model implies that people’s decision to cut back on consumption and work reduces the severity of the epidemic, as measured by total deaths. These decisions exacerbate the size of the recession caused by the epidemic. The competitive equilibrium is not socially optimal because infected people do not fully internalize the e§ect of their economic decisions on the spread of the virus. In our benchmark scenario, the optimal containment policy increases the severity of the recession but saves roughly 0.6 million lives in the U.S.
I would add this: if you hold the timing and uncertainty of deaths constant, death and output tend to move together. That is, curing people and developing remedies and a vaccine will do wonders for gdp, through the usual channels. The tricky trade-off is between output and the timing of deaths. Whatever number of people are going to die, it is better to “get that over with” and clear up the uncertainty. Policy is thus in the tricky position of wishing to both minimize the number of deaths and yet also to speed them along. Good luck with that! In terms of an optimum, might it be possible that some of the victims do not…get infected and die quickly enough? Might that be the more significant market failure?
Via Harold Uhlig. In any case, kudos to the authors for focusing their energies on this critical problem.
Angela Merkel’s cabinet is meeting on Monday to approve new borrowing of €356bn — equivalent to nearly 10 per cent of Germany’s gross domestic product — marking a new era in fiscal policy and a radical departure from Berlin’s long-held aversion to debt.
Here is the FT piece, but this is being covered everywhere. (Imagine a day where this isn’t even necessarily the biggest story, and here we are.) Of course the content of the spending matters a great deal, but this is in principle the right thing to do. But here is the catch: out on social media, and in the old days of the blogosphere, there was so much Merkel hatred: “the austerity queen who killed thousands,” etc. But now she has been vindicated. We all can agree that a government should (on average) run surpluses in good times and deficits in bad times. Well…2011-2012…those were the good times. Yikes.
Merkel goes up in status with this, big time. And of course it is no surprise that a bunch of Germans would have a better sense of what the bad times really can look like.
Adam Tooze at the NYT has the very best piece I have seen on this question. You do need to read the whole thing, but here is part of the opening bit:
For the second time this century, the world is facing an acute shortage of dollar funding. This is a big problem: An enormous amount of global financial activity depends on the use of the dollar. If we are to contain the fallout from the crisis, America’s central bank must act as a lender of last resort not just to America’s financial system but also to the entire world’s.
From Arnold Kling, excerpt:
In the long run, I don’t expect normal either. Pre-crisis, our patterns of specialization and trade were optimized for efficiency at the expense of fragility. Expect supply chains in the future to have a lot more redundancy and to be less driven by cost minimization. The Chief Risk Officer’s approval will now be needed before the CEO will approve a major new supply contract.
We will develop a lot of what you might call social-distancing capital, including the ability to make use of remote meetings and distance learning. Last night, some folks attempted a virtual session of dancing. Most of the time was spent getting a bunch of old people up to speed on using Zoom. Next time, we might be able to dance. People will get accustomed to new forms of entertaintment.
Many sectors were way too levered–households with too little savings and too much debt, businesses with too little cash reserves and too much debt, and governments with too much debt and unfunded liabilities. Behavior is likely to change going forward. I expect to see a major reduction in financial intermediation. Financial intermediaries, such as banks, are in the business of issuing riskless, short-term liabilities backed by risky, long-term assets. This allows the nonfinancial sector to do the opposite. I don’t think that we will be able to sustain as much financial intermediation as we did before, and the result will have to be individuals and firms undertaking fewer risky, long-term projects.
The challenges for other countries will be much more difficult. De-globalization is taking place, and that will produce losers and bigger losers (it won’t produce many winners). Become familiar with Peter Zeihan’s way of viewing the world. Don’t take the international order for granted. Zeihan emphasizes that the U.S. is one of the few countries that produces enough food and energy for itself. China, on the other hand, needs to import both. That would lead one to predict that China will be in the “bigger loser” category.
And NASDAQ is in the green today!
What is the scenario for going back to work? Testing and tracing. In fact, two types of tests. First, the test for COVID-19 which says if an individual is infected. After deadly delays caused by the FDA and CDC we unleashed the private labs and the states and are now ramping up the number of tests. As of today, we have run about 80 thousand but we need many more and with every positive test we need to isolate and contact trace. Test, isolate, and trace. Health care workers need daily testing. We don’t need to test everyone but we do need to test enough to get the number of new cases down to a level that people feel comfortable returning to work, to shop, to eat. In China yesterday there were no new local infections. We can get there.
The second test is for COVID-19 antibodies which indicate that the person was infected and recovered and may thus have some immunity. An antibody test was just announced. The test looks only at one antibody and this doesn’t guarantee immunity. Nevertheless, people who have been infected and recovered are valuable. The blood of recovered individuals may be useful as a treatment. (N.B. The NIH Vaccine Research Center is looking for otherwise healthy recovered COVID-19 patients who are willing to donate their blood for study. Please contact.) In addition, recovered individuals have a kind of superpower and would be highly desirable workers. Recovered individuals are better able to help the sick at lower risk, for example (David Balan made this point in an unpublished piece). Moreover, a non-infected person would be very willing to work with a recovered person so the effect on labor supply is amplified.
As with the financial crisis, there are some bad risks out there but no one knows where and so every borrower/worker is suspect and no one is lending/working. With more information we can separate out the bad risks and get the majority of people working again.
To be clear, things are going to get worse but there is a reasonable scenario for recovery. Social distancing, including all the shutdowns, will start to show an effect in a week or two. With luck and effort we may stop SFO, Seattle and NYC from going critical and we can then start to bend the curve nationally. If we greatly expand testing, it’s possible that we can get people back to work in one or two months. That will not end the crisis–a fall rebound is possible and we can expect outbreaks. But if we test quickly and widely at the first sign of an outbreak, outbreaks can be contained. A vaccine is also possible and perhaps faster than most people think. Treatments will also improve. Testing and tracing buys us time.
We can get the economy back on track. Testing, isolating and tracing will do it much faster and cheaper than dealing with a prolonged recession.
Under the America COMPETES Reauthorization Act of 2010, US agencies have the authority and significant funds (up to $50 million, which may be pooled) to create prizes. Section 24 permits any agency head to “carry out a program to award prizes competitively to stimulate innovation that has the potential to advance the mission of the respective agency.” The European Commission has also used prizes to combat antimicrobial resistance and to pursue other goals. Thus, there is significant authority and knowledge in place to implement prizes quickly. A billion-dollar prize or series of prizes is also well within the capabilities of a number of individuals and private organizations throughout the world.
I suggest some best practices and write about implementation issues. This point is somewhat under recognized:
A prize need not be lump sum but could be tied to usage. For example, a $1 billion prize for a vaccine plus a $5 payment for every person vaccinated would tie innovation incentives even more closely to social incentives. The Advance Market Commitment for vaccines is a successful example. A prize tied to usage combines the best aspects of a prize and a patent. The prize helps to align incentives with public good production; the usage (patent-like) aspect helps to align incentives with market demand. A related advantage of tying the prize to usage is that less needs to be done up front in specifying the characteristics of the solution. For example, in the Advance Market Commitment, the vaccine had to satisfy certain properties, such as being shelf stable and administrable in developing countries. These details can be key in deciding what satisfies the prize conditions but are less necessary to the extent that the prize is tied to usage.
Here are the Emergent Venture Prizes to Combat COVID-19.
We recorded this two days ago on the spur of the moment, the discussion is still current, here is the transcript and audio, here is the CWT summary:
Tyler and Russ Roberts joined forces for a special livestreamed conversation on COVID-19, including how both are adjusting to social isolation, private versus public responses to the pandemic, the challenge of reforming scrambled organization capital, the implications for Trump’s reelection, appropriate fiscal and monetary responses, bailouts, innovation prizes, and more.
Russ is more optimistic than I am, here is one excerpt on the economic side:
COWEN: Well, two to four weeks [of shutdown], those are easy cases. If you think of many service sectors as having to shut down say until August, which is quite a possible scenario in some cases even later. That to me is greatly concerning and it may vary across sectors. So if you think about the NBA, whenever the NBA is ready to play games again, I mean the players will show up the next day and there’ll be ready, right? That will come back very quickly. But if you think of small businesses, say restaurants, the big chains aside, they’re typically thinly capitalized.
Let’s say a significant portion of those are gone forever. And then when things are somewhat normal again, how does the economy re-scramble and re-constitute the organizational capital that was in those ongoing enterprises? That to me is a hugely difficult problem and whatever you think the government should or should not do, just spending a lot on fiscal stimulus will not ease that problem. That’s the actual destruction going on is the relationships, the organizational capital, the intangibles that will decay. Not over two weeks, probably not over four weeks but over four or five months or longer. Then I think that’s a matter really of great concern…
But even in China where the number of new cases is really in most parts of the country, genuinely very low, they are not returning with live sporting events. Keep in mind we will have a pool of never infected people, which will be fairly large in absolute numbers and what risks we will be willing to take. Insurance companies would allow, our liability system and corporate lawyers would be willing to allow. When you think through all of that stickiness, I think we’re really not so close to resuming many of these shutdown activities.
There is much more at the link, we start off on the personal side and then move into the larger issues.